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September 4, 2013

Same-Sex Marriages Now Recognized for Federal Tax Purposes

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Two months after the U.S. Supreme Court invalidated a key provision of the 1996 Defense of Marriage Act, the Treasury Department and the IRS have issued a ruling that implements federal tax aspects of the court’s decision.

The ruling, issued last week, says that same-sex couples who are legally married in one of the 50 states, the District of Columbia, a U.S. territory or a foreign country that recognizes their marriages will be treated as married for federal tax purposes.

Importantly, the ruling applies regardless of whether a couple lives in a jurisdiction that recognizes same-sex marriage or in one that does not.

Starting Sept. 16, same-sex couples will be treated as married for all federal tax purposes, including income and gift and estate taxes. The ruling applies to all federal tax provisions where marriage is a factor:

Filing status

Claiming personal and dependency exemptions

Taking the standard deduction

Employee benefits

Contributing to an IRA

Claiming the earned income tax credit or child tax credit.

The ruling does not apply to registered domestic partnerships, civil unions or similar formal relationships recognized under state law.

Treasury and the IRS said legally married same-sex couples generally must file their 2013 federal income tax return using either the married filing jointly or married filing separately filing status.

Individuals who were in same-sex marriages may, if they want, file original or amended returns choosing to be treated as married for federal tax purposes for one or more prior tax years still open under the statute of limitations.

Generally, the statute of limitations for filing a refund claim is three years from the date the return was filed or two years from the date the tax was paid, whichever is later. As a result, refund claims can still be filed for tax years 2010, 2011 and 2012, using Form 1040X, Amended U.S. Individual Income Tax Return.

In addition, employees who purchased same-sex spouse health insurance coverage from their employers on an after-tax basis may treat the amounts paid for that coverage as pretax and excludable from income.

Couples who live in jurisdictions that recognize same-sex marriage can also file joint state tax returns. However, the process will likely be more cumbersome for couples who live in jurisdictions that do not recognize same-sex marriage.

According to a report in The New York Times, each spouse will probably have to prepare a dummy federal return as if filing as a single person or head of household, then transfer the information on the dummy form to his or her state return, which must also be filled out as single or head of household.